When it’s your life on the line, it pays not to mess around.
Forgetting a payment, or not being able to meet one, is easy to do in the hubbub of modern life. This is especially true thanks to cascading debt in the average American household.
Luckily, there’s such a thing as a life insurance grace period.
We’ll be taking a look at what a grace period is and what it means for you below.
What is a life insurance grace period?
The life insurance grace period exists to provide a window of security should you miss your payments, no matter what type of life insurance you have. The grace period ensures your policy won’t be canceled immediately.
This isn’t an ideal situation for the insurer, as it risks them having to pay out despite not having received premium payments.
The grace period does, however, provide you with security in the event of a financial emergency, forgotten check, or anything else which may get in the way of your payments.
Luckily, the grace period provides a buffer of time, usually around thirty days, in which you can rectify the missed payment.
Your coverage continues to apply for as long as you’re in the grace period. Should you pass away while the grace period is in effect, the policy will issue the full payout to beneficiaries minus the sum you owe.
Grace periods helps to ensure your beneficiaries receive your life insurance payout even if you’re incapable of paying the bill. The grace period also helps avoid the need for underwriting.
How do I know my grace period?
Your grace period should be indicated on your policy documents. If you’re unable to find the information, contact your insurance company and they’ll be able to advise you.
Luckily, a grace period is a legal requirement in every single state in the US, so you can be confident that your insurance will come with one.
Your grace period may be shorter if you pay monthly and longer for annual payments.
Whatever its length, your grace period will start on the day the missed payment should have been made. The period will end at the close of business following the set number of days.
What happens if I miss the grace period?
Although you won’t be immediately cut off from your policy if you should miss a payment, the life insurance grace period is your last chance. If you miss the grace period, your policy will lapse, leaving you without life insurance coverage.
After this point, you’ll no longer be covered by the policy.
What happens following a lapse can vary between insurers. In some cases, you’ll be able to reactivate your policy once the payment is made. In the worst case, you may be forced to reapply for cover.
You might even find yourself facing higher premiums as a result.
If you attempt to resume your policy with your insurer, you’ll need to pay the missing balance. If you die outside the grace period with a lapsed policy, your beneficiaries will receive absolutely nothing.
Any money you’ve spent on the policy will essentially be wasted.
Generally, you’ll only need to reapply for cover if there’s been a change in your medical circumstances. In this case, the insurance company is likely to ask for a new medical exam and may increase the premium as a result of the evaluation.
Under no circumstances should you simply let the grace period expire as a way of canceling your policy. This will break the agreement with the insurer, potentially making it more difficult to find insurance elsewhere. Such action could also affect your credit rating.
If you were to pick this policy back up in a few months time, you’d then owe months of backdated premium payments, potentially leaving you with more trouble than you had before.
You may also find your insurance company won’t reinstate your insurance without it being underwritten. By missing the grace period, you’ve added another risk factor for your insurance company to consider when deciding to reinstate your policy.
Staying on top of payments
By far the easiest way to avoid any discussion of grace periods is to stay on top of payments.
It may sound easier said than done, but there are a number of changes you can make to your lifestyle and finances to ensure you pay your premium on time.
- Create reminders – use your personal organizer of choice (phone, email, diary etc.) and create reminders prior to the payment date.
- Ring-fence money – use a separate account to your main balance for these kinds of payments, and set the payment to go out automatically. Now all you need to do is be sure the money is present in your account.
- Change your payment method – many policies give multiple options for the payment cycle, such as monthly, quarterly, or annually. Depending on your circumstances, you may find one payment method suits you above others, in which case you should switch to it.
- Keep your details up to date – if you change address, legal name, bank details, or anything else you believe may affect the account, then you should do your best to notify your insurer of the change.
Ultimately, you should remember that it’s in everyone’s best interests if you communicate with your insurer if you should miss a payment.
Your agency will want to keep you on their books and also recover any money you owe them, so they’ll be prepared to work with you to settle your account. This could mean moving to a different payment plan, for example.
Missing your premium payments and the grace period is only likely to cause more problems in the long run. Get on top of the situation, and you’ll have the peace of mind that life insurance should offer.
Feel free to contact us if you have any further questions. We’ll be happy to help. Or you could get a quote today using the form on the right of the page.